Broker Regulation
Currently there are many brokers to trade CFDs in the market that offer their services to all types of investors. One of the most important factors for choosing an online broker is that it is a reliable company. The broker is responsible for receiving our money, watching over it and executing all the financial operations that we order. This is why it is very important to choose a broker that is serious, transparent and regulated.
The fact that a broker is regulated makes it a trusted entity, as it is subject to numerous regulations that must protect investors, ensure the solvency and security of the funds, as well as the information and transparency of its activity.
There are numerous regulatory bodies, some more demanding than others. One of the most demanding worldwide is the FCA, which is the regulator of financial services in the United Kingdom. This body has the Financial Services Compensation Plan (Financial Services Compensation Scheme), which has increased the protection available to individual investors from £50,000 to £85,000 recently, making this regulation the safest. Other regulations with security for investors is the ASIC, the Australian regulatory body.
Broker Type
This is a very important question that we must take into account. There are several types of CFD brokers depending on their operations and the way in which they execute our orders. On the one hand we find the brokers market maker, which we do not recommend under any circumstances. These types of brokers do not execute your buy or sell order on the market, rather it is the broker itself that gives you the counterparty and the rest is a “simulation” process on the “real” market price. That is, if your order never went to the market and it is the broker himself who gives you the counterparty, each loss you have in your account will be the broker’s profit, while if you win, it will be the broker who loses, producing a conflict of interest. against you. In choosing the right broker, we would flatly rule out anyone who was a Market Maker.
On the other hand, we find the brokers ECN/STP, which directly execute your order to the market. That is to say, your interests and those of the broker are aligned, it does not win with your profit or with your loss, since its business is to collect the fixed commission for entering the market plus the spread, which is still a floating commission. In choosing the right broker, we would look for an ECN type broker.
Commissions and Spread
The broker works as the intermediary between you and the Stock Exchange. The broker’s job is to carry out the operations that you order. Therefore, for each purchase (Bid) or sale (Ask) order, our intermediary charges us a commission. These usually range from $3.5 to $6.
On the other hand, the CFD’s broker also charges a floating commission that is the spread (we already explained in another article what the spread is). Depending on the type of account you have, whether it is professional or not, the spread usually ranges between 0.1 and 1.2. For small accounts you are interested in looking for a broker that charges you less commission and a little more spread, and for accounts with more capital the opposite.
Investment instruments available
We must choose the online broker that fits our way of operating. An essential part in this regard is that the broker offers the possibility of investing in the financial instrument or instruments that we are looking for (currencies, raw materials, precious metals, CFDs, stocks, indices, energies, futures, ETFs).
In future articles we will analyze the best brokers to operate in Forex, analyzing all the above and breaking down the virtues and defects of each of the most used brokers.
Conclusion
Our recommendation is that before deciding on the choice of broker, whether to trade Forex with currencies or indices, or any other to trade stocks, you spend some time studying and analyzing each broker. In this article we have tried to clarify which are the points in which you should show the most attention.